XDC 2.0 Staking, Rewards and Burning Upgrade

Abstract
This white paper introduces XDC 2.0 Staking, Rewards and Burning Upgrade, an additional advanced decentralized consensus mechanism for the XDC Network. Building upon Satoshi Nakamoto Consensus, XDC 2.0 integrates innovative features like "Protector Nodes," “Observer Nodes” dynamic reward distribution, inflation reduction via token burning, and robust economic incentives to ensure network security, scalability, and decentralization.

1. Introduction
1.1 Background
The XDC Network, a high-performance blockchain tailored for real-world trade finance, P2P Payment and decentralized finance (DeFi) use cases.To enhance its security and scalability, XDC 2.0 introduces a hybrid consensus upgrade inspired by Nakamoto Consensus principles while optimizing for modern enterprise blockchain requirements.
1.2 Vision
The XDC 2.0 upgrade aims to:

• Strengthen decentralization through dynamic node roles (Core Validators, Protector Nodes, Observer Nodes).
• 2x Protector Nodes (e.g: Core Validators * 2 = 216 Protector Nodes) ensure fault tolerance. Enhance network security
• Observer Nodes (unlimited)
• Address inflation through token-burning mechanisms.

2. Core Principles of XDC 2.0
XDC 2.0 builds on core principles derived from Satoshi Nakamoto Consensus:
2.1 Decentralization
The 108 Core Validator Nodes form the network's backbone, requiring a minimum stake of 10 million XDC each, with no upper limit, enhancing security and making the network increasingly resistant to attacks.
Additional nodes include Protector Nodes (e.g: Core Validators 108 * 2 = 216) and Observer Nodes (unlimited).
2.2 Security through Economic Incentives
High staking thresholds deter malicious actors.
Staking rewards incentivize participation and ensure honest behavior.
Token-burning mechanisms reduce inflation and maintain token value.
2.3 Byzantine Fault Tolerance
The system tolerates up to 1/3 malicious actors while maintaining network integrity, ensuring robust fault tolerance.
2.4 Double-Spend Protection
Immutable records are ensured through cryptographic proofs and consensus rules.
2.5 No Central Authority
Consensus is achieved without relying on a single trusted entity. Instead, it relies on decentralized, peer-to-peer verification.

3. Mathematical Formulas and Reward Mechanisms
3.1 Validator Node Rewards
Each Epoch (900 blocks) generates 6000 XDC to be distributed among the 108 Core Validator Nodes (and 10000 XDC for Protector Nodes.) The reward per Validator Node (Rv) is calculated as:
Rv = 6000/108
3.2 Protector Node Rewards
Protector Nodes act as backups for Core Validators. Rewards for Protector Nodes are distributed proportionally based on the number of Protector Nodes per Validator Node. If Pn​ is the number of Protector Nodes per Validator:
Rp = Rv/Pn​​
For example:
If 2 Protector Nodes exist, each receives Rp​=Rv​/2.

3.3 Inflation Control through Token Burning
To maintain a deflationary token ecosystem, a percentage (B%) of XDC is burned from transaction fees per block. This percentage is decided by the XDCDAO and is applied as:
Tb​=Tf​ × B%
Where:
Tb​ = Tokens burned per block.
Tf​ = Total transaction fees collected per block.

If more is burned on base fee than is generated in mining rewards then XDC will be deflationary and if more is generated in mining rewards than is burned then XDC will be inflationary. Since we cannot control user demand for block space, we cannot assert at the moment whether XDC will end up inflationary or deflationary, so this change causes the core developers to lose some control over XDC’s long term quantity.

3.4 Staking Security Formula
The cost to attack the network increases exponentially with the number of staked tokens. The security factor (S) is calculated as:
S = Total Staked XDC × Minimum Required Nodes (108) × C

Where C is the computational cost of attacking a single node.

4. Node Roles and Responsibilities
4.1 Core Validator Nodes
Minimum stake: 10 million XDC (With No upper limit).
Primary responsibility: Block validation and consensus participation.
Rewards: Rv​​ per epoch.
4.2 Protector Nodes
Minimum stake: 10 million XDC (With No upper limit).
Role: Standby for Core Validators, ensuring network resilience.
Reward mechanism: Rp​ based on the number of Protector Nodes per Validator.
4.3 Observer Nodes
Minimum stake: 10 million XDC (With No upper limit).
Unlimited participation.
Role: Network observation
Reward mechanism: 1/2 * Rp
**No technical limit exists on staking beyond 10 million XDC per node, encouraging healthy participation and enhancing network security. Higher stakes increase resistance to manipulation, aligning with Byzantine Fault Tolerance (BFT) principles, and provide prior opportunities for participants to become Core Validators or Protector Nodes with higher contribution to the core Network.

5. Economic Incentives
5.1 Honest Participation
Honest actors (Validators, Protectors, and Users) are incentivized through rewards and penalties, ensuring alignment with network goals.
5.2 Malicious Behavior Deterrence
Malicious actors face economic penalties, such as loss of stake and Slashing (exclusion) from the network.
5.3 Dynamic Staking Model
The flexible staking model allows Validators to stake additional XDC, increasing the cost of an attack and enhancing network security.

6. Governance and Community Involvement
6.1 Role of XDCDAO
XDCDAO governs key decisions, including:
Adjusting the burn percentage (B%)..
Voting on major protocol upgrades.

7. Technical and Economic Advantages
7.1 Security
Higher staking thresholds make attacks economically unfeasible.
2x Protector Nodes ensure fault tolerance.
7.2 Scalability
Layered node architecture allows for infinite scalability via Observer Nodes.
7.3 Sustainability
Token burning reduces inflation, maintaining long-term token value.

8. Conclusion
The XDC 2.0 Staking, Rewards and Burning Upgrade represents the next step in XDC 2.0 evolution. By blending the principles of Nakamoto Consensus with innovative reward and inflation control mechanisms, XDC 2.0 delivers a secure, scalable, and economically sustainable decentralized network. This upgrade positions the XDC Network as a robust, enterprise-ready blockchain, setting new standards in decentralization and trust.
The END release ensures the network's robustness, security, and scalability while staying true to the core principle of decentralization, empowering the ecosystem to meet the demands of modern blockchain applications.

Please provide feedback and suggestions before we go for actuarial vote at https://www.xdcdao.org/